Scope

Regulation: Article 101 LIS

A company is considered to be small in size and, therefore, may apply the tax incentives provided for these companies in Chapter XI of Title VII of the LIS, when the net amount of the turnover in the immediately preceding tax period is less than 10 million euros.

The tax incentives provided for small companies may also be applied in the three tax periods immediately following the one in which the aforementioned turnover of 10 million euros is reached, in the following cases:

• When the entity or group of entities have met the conditions to be considered small in size both in that period and in the two tax periods prior to it.

• When said turnover has been reached as a result of having carried out an operation under the special tax regime for mergers, spin-offs, contributions of assets and exchange of securities established in Chapter VII of Title VII of the LIS, provided that the entities that have carried out such operation meet the conditions to be considered as small in size, both in the tax period in which the operation is carried out and in the two tax periods prior to the latter.

Considerations on the Net Amount of Turnover

• The Corporate Tax Law does not define what is meant by turnover.

  However, given that the rules of common law are supplementary in the fiscal area (article 7.2 of Law 58/2003, of December 17, General Tax), we find the concept of turnover in article 35.2 of the Commercial Code, which establishes that said figure shall include the amounts from the sale of products and the provision of services or other income corresponding to the ordinary activities of the company, after deducting bonuses and other reductions on sales, as well as Value Added Tax and other taxes directly related to the aforementioned turnover, which must be subject to repercussion. This same definition is included in the Annual Accounts Preparation Standard 11 of the General Accounting Plan ( NECA 11 of PGC ), referring to the determination of the annual turnover, whose components for its determination are established by the Resolution of ICAC of May 16, 1991.

• In the case of newly created entities , the amount of the turnover will refer to the first tax period in which the activity is actually carried out.

• If the immediately preceding tax period had a duration of less than year or the activity had been carried out for a period of time that was also shorter, the net amount of the turnover will be increased to the year.

  (Net turnover of the immediately preceding tax period / number of days of the immediately preceding tax period) x 365 days

• When the entity forms part of a group of companies within the meaning of article 42 of the Commercial Code, regardless of the residence and the obligation to prepare consolidated annual accounts, the net amount of the turnover will refer to the set of entities belonging to said group, taking into account the eliminations and incorporations that correspond by application of the accounting regulations. Consequently, when the entity is part of a group of companies within the meaning of article 42 of the Commercial Code, if the net amount of the turnover of all the entities belonging to the group was not less than 10 million euros in the previous year, none of the companies comprising the group may apply the tax incentives established in the LIS for small companies.

  This same criterion shall also apply in cases where a natural person, alone or jointly with a spouse or other natural persons related by direct or collateral kinship, by blood or affinity, up to the second degree inclusive, are in relation to other entities of which they are partners in any of the situations referred to in article 42 of the Commercial Code, regardless of the residence of the entities and the obligation to prepare consolidated annual accounts.

  For the purposes of article 42 of the Commercial Code, a group exists when a company holds or may hold, directly or indirectly, control over another or others. Specifically, control is understood to exist when a company, deemed the parent, holds relations with another company, deemed the subsidiary, in any of the following situations:

  1. It holds the majority of the voting rights.

  2. It has the power to appoint or dismiss the majority of the members of the governing body.

  3. It can avail of the majority of the voting rights by virtue of agreements held with third parties.

  4. It has assigned its voting rights to the majority of the members of the governing body, who are in office at the time of the preparation of the consolidated accounts and during the two years immediately prior thereto. Specifically, this circumstance shall be understood to apply when the majority of the members of the governing body of the subsidiary are members of the governing body or senior management of the parent or other company held by the parent. This will not give rise to consolidation if the company whose directors have been appointed is associated to another in any of the cases set forth in the first two parts of this section.

  For the purposes of this section, voting rights attributable through other subsidiaries or through parties acting in their own name but on behalf of the parent or other subsidiaries, or those agreed with any other party, shall be added to the voting rights of the parent company.